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This Gujarati left white-collar job to pick multibaggers on D-

By Rahul Oberoi, ETMarkets.com | Updated: Apr 10, 2018, 04.13 PM IST

His entry into the stock market was incidental. At 37, Ahmedabad-based Dhwanil Desai is
drawing eyeballs of peer investors for having spotted some solid multibagger ideas over the
past 10 years. And he says, he is enjoying his investing journey more than anything else.

Desai picked Cera Sanitaryware and Piramal Enterprises seven years back, and made money
with both hands as the duo surged up to 1,700 per cent in this period. He still holds these

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He also made money in Amara Raja Batteries, Atul Auto, Ajanta Pharma and Mayur Uniquoters,
which have grown manifold over the past decade. Desai does not hold these stocks now.

“I am always on the lookout for businesses that are developing some kind of competitive
advantage over peers and are doing so pro tably and in a capital-e cient manner. Once I
gure it out, I patiently wait for the market to give me an opportunity to buy such stocks at
reasonable valuation,” Desai said.

Some of his recent holdings include Edelweiss Financial Services, Jubilant FoodWorks, Bajaj
Finance, Shaily Engineering and Excel Cropcare.

Edelweiss is up around 400 per cent in last two years, while others have delivered anywhere
between 280 per cent and 80 per cent returns over last 15 months.

ETMarkets.com could not independently verify Desai’s holdings at present or back then.
A chemical engineer by education who then went on to earn an MBA degree from University of
Akron, Ohio, Desai almost ended up being a consultant in one of the Big Four consultancy
rms, but the turn of circumstances made him look for value in the stock market.

“I returned from the US in 2007 and joined a consulting rm. But the rm was going through its
own peaks and troughs in terms of workload. I had some time at my hand, and some investible
surplus. In the market, it was one of lull periods in 2009. So, instead of giving my money to
mutual funds, I decided to do some experimenting and try and acquire
some rst-hand knowledge in the market,” Desai recalls.

That bet worked and made Desai change tack. Reading about legendary investor Warren
Bu ett and his wealth creation ideas got him hooked to the idea of investing as a profession.

“I never looked back. A hobby became passion and nally my profession,” Desai says.

“I love his (Dhwanil) in-depth work. He has an ability to explain products behind the companies
and their future prospects.” That endorsement comes from Lucknow-based fellow value
investor Ayush Mittal, who has known Desai for ve years now.

Desai admits it was not an easy decision to leave his full-time consulting job and venture into
full-time investing. I parked aside funds equivalent to three years’ annual expenses and then
went full throttle into investing.

“For some time, I continued to do consulting work for meeting cash ow requirement, but
eventually gave that up to focus on investing full time,” he adds.

Investment Strategy
Desai says he follows a two-level process to assess the quality of a business. First, he does
some fundamental analysis, which is largely quantitative, using a company’s nancial numbers
for 10-15 years to understand sustainability of the business model, business economics, nature
of growth, whether it has been secular, lumpy or cyclical, what have been the patterns of
pro tability, pricing power, cash ow generation and cash utilisation.

He then turns to qualitative analysis once a business passes the rst lters. In qualitative
analysis, Desai tries to understand the industry dynamics, competitive advantage, entry
barriers for others, business strategy of the company and management quality to provide the
context to quantitative analysis.

“I do qualitative analysis by reading annual reports for eight to 10 years, going through
transcripts of conference calls, details of interactions with company management, analysing
industry/trade reports and magazines, and some scuttlebutt around various stakeholders
(suppliers, customers and dealers). Based on such holistic assessment, a business
case/hypothesis is formed about investment idea,” Desai told ETMarkets.com.
He keeps a checklist on the above process to enforce a discipline on himself. “Maintaining the
discipline to follow the de ned process is very important in investing, as it will help avoid biases
in decision making,” he said.

Desai says making the right decision on selling is very important to ensure optimal returns.

Even after getting multibagger returns, if the underlying thesis about the quality a business and
growth remains intact, one should continue to hold and vice-versa, he says.

Desai says he sells only when he realises that he has made a mistake in his buying decision or
when the thesis for making “buying decision” is no longer valid.

This can happen due to change in business model, technology disruption, change in industry
dynamics, competitive intensity, shift in regulatory environment and a change in perception
about management quality.

Often he sells a holding when an alternative investment opportunity is signi cantly more
attractive from a risk-reward perspective, or when a single position in the portfolio becomes
too large (beyond the comfort zone - typically more than 25 per cent of portfolio).

There is no standard formula about the right buying price, says Desai. And that’s true of almost
all investment decisions
“I try to ensure that my downside/loss of capital is limited. I often pass o opportunities where
rewards can be signi cant but the downside can be large too,” he says.

Desai says he is constantly looking for mispriced bets. According to him, such bets can be
found in one of the three distinct categories – undiscovered businesses, ignored businesses
and fallen angels.

Typically, the bucket of undiscovered businesses consist of small or micro cap stocks where the
story is not known and business models are still evolving. In their early days around 2010-2011,
Cera, Mayur Uniquoters, Astral, Ajanta Pharma all fell in this category.

Ignored businesses and high-quality businesses where stories are well known in the market,
but remain ignored by the market, lead to mispricing. This happens often for reasons such as
business going through transition phase, lack of growth or transient industry headwinds.
Currently, such examples are galore among midcap IT companies, select rating agencies and
media companies.

Fallen angels are those businesses which were once richly valued by the market due to high-
quality franchise but have gone through protracted periods of under performance and/or an
event may have occurred leading to a highly uncertain situation around the business

But if the underlying strength of such a business remains intact, then the tide can turn if the
management remains focussed.

Jubilant FoodWorks till last year, Piramal after selling o its domestic business to Abbott, MCX
after the hammering post-NSEL episode were examples of fallen angels.

While he himself is a multibagger hunter, Desai advises against getting lured by the greed of

“Instead, focus on investing in fundamentally strong businesses that can compound money at
decent rate and buy them when the market gives you an opportunity in a severe correction or
when a stock gets beaten down due to temporary problems,” he said.

Desai also underlines the need for capital allocation, which he feels is much more important
than stock selection.

“Stock selection may give you the thrill of nding a multibagger, but real wealth will be created
only if you allocate signi cant capital to that multibagger. Since, very few such wealth creating
ideas will come your way in your investing lifetime, you should load up when you realise you
are on to something big,” he said.

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